The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) while allowing the set-off of Long Term Capital Loss (LTCL) on sale of shares against Long Term Capital Gain (LTCG) on sale of property ruled that every taxpayer was entitled to arrange his affairs to lower down taxes.
The assessee, Michael E Desa is a non-resident Indian now fiscally domiciled in the United States. During the relevant previous year, the assessee sold a property, of which he was 50% co-owner, and reported an earning of long-term capital gain of Rs 95,12,556. The assessee also reported a long-term capital loss of Rs 1,11,87,578 on the sale of certain shares in VCAM Investment Managers Pvt Ltd (VCAM). The Assessing Officer was of the view that “the (this) long term capital loss was attributed on account of equity shares of VCAM (Investment Managers Pvt Ltd) which appears to be prima facie fictitious and not entitled to be adjusted against any taxable income”.
The two-member bench of Vice President Pramod Kumar and Judicial Member Ravish Sood noted that “the net worth of the company is fully eroded and is wiped out by losses” and “the value of these shares is in negative with no future profit-earning capacity or any future business prospects”.
“The Assessing Officer cannot disregard a transaction just because it results in a tax advantage to the assessee. Just as much as we cannot legitimize and glorify tax evasion through colorable devices and tax shelters, we cannot also deprecate and disapprove genuine tax planning within the framework of the law. The line of demarcation between what is permissible tax planning and what turns into impermissible tax avoidance may be somewhat thin, but that cannot be excuse enough for the tax authorities to err on the side of excessive caution,” the ITAT ruled.
Therefore, the ITAT directed the Assessing Officer to allow the set-off of this long-term capital loss on the sale of shares in VCAM Investment Managers Pvt Ltd, against the long-term capital gains on the sale of the property.
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